Principles

Principles are the foundation of GISR’s Framework. They constitute a high-level normative statement to guide the process and content aspects of sustainability ratings. A
comprehensive set of Principles provides a compass for navigating these process and content aspects, informs the selection of Issues and Indicators, and signals to financial markets, companies, consumers and the public at-large that ratings practices are credible and of high quality. Explore the 12 Principles below.

The process for staging the development of the Principles involved mapping a representative sample of kindred initiatives wherein principles are either the centerpiece or one aspect of the program. View a copy of this exercise, “Sustainability Principles Comparison”.

The 12 Principles

The 12 Principles comprise two categories: Process and Content. The interpretive guidance that follows each principle explains its rationale and application. GISR’s accreditation policies and procedures will provide more details on the criteria by which a rating will be evaluated against each principle.

Process: Principles pertaining to the design, application, and maintenance of a rating to ensure excellence, credibility, and integrity

TransparencyA rating should be transparent to those whose decisions are affected by the application of such rating.Read more.

The Transparency Principle calls for a compact among parties that honors the need for companies, investors and other stakeholders to understand the rating, while respecting the need for justifiable intellectual property protection. A confidentiality agreement may provide sufficient protection in cases where a user seeks disclosure of core elements of intellectual property, e.g., the weightings and indicator combinations embedded in the methodology. When an RO believes confidential disclosure will adversely affect its interests, it should explain the basis for its judgment, pursuant to a “Disclose-or-Explain” process. In general, all ratings should be subject to a publicly available Transparency Policy that details what is disclosed, to whom and why.

The appropriate level of transparency involves trade-offs between credibility and trust, protection and competiveness. Too much transparency can undermine a critical element of the RO’s business model, as well as suppress the incentive to innovate. Too little transparency leaves companies, investors and other stakeholders with inadequate understanding of the scores companies receive. Without adequate transparency, it is not possible to understand why performance assessment by the same RO fluctuates widely from year to year, or within the same year for the same company subject to multiple ratings.

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The Transparency Principle addresses the need for stakeholders to understand a rating’s data sources, assumptions, scoring methodology and extrapolations (in cases where data gaps exist). Transparency is essential for making informed decisions as to which ratings are best suited to specific needs and how such ratings generate the resulting performance outcomes.

Companies benefit from understanding the methods, algorithms, issues, indicators and analytical models that determine how ROs measure and rate their performance. Such transparency also helps companies identify targets for improvement. In most cases, companies understand that boundaries will exist between information essential to understanding a rating and information that ROs regard as intellectual property.

Investors benefit when ratings are fully transparent because full disclosure of information affords a higher degree of confidence when applying the rating to an investment decision. It also enables investors to effectively communicate to their clients why specific investment decisions are made.

Whether a rating is constructed solely on company data or in conjunction with data from the media, NGOs and other sources should be disclosed. Investors purchase ratings from outside vendors to augment the analytical models developed internally because they prefer to outsource data collection and development of analytical tools. In cases where they do, confidential disclosure of a rating may be negotiated with the client on a confidential (non-disclosure agreement) basis.

ImpartialityThe design and application of a rating, whose primary users are external to the evaluated company, should be protected from undue influence by such company.Read more.

The Impartiality Principle addresses the need for ROs to remain independent from evaluated companies in order to avoid the perception or reality of conflicts of interest that may affect the structure and application of the rating. Undue influence occurs when the integrity of the design and/or implementation of a rating is compromised, leading to deviations from sound analytics and biased outcomes misaligned with a given methodology. Pre-empting such a situation begins with transparency. ROs that market their products to third parties (investors, consumers and/or NGOs) should establish and publicly disclose a code of conduct that fully describes the nature of such relationships and the associated policies and procedures, even if names of specific companies are withheld for competitive reasons.

Even with such disclosure, however, stakeholders who seek an unequivocal detachment between RO and company may question the relationship between the two parties. Two remedies will mitigate this situation. First, ROs routinely should disclose any and all relationships, commercial or otherwise, with evaluated companies, as well as policies and procedures to ensure ratings remain untainted by conflicts of interest. Second, ROs should safeguard against conflicts by establishing a firewall between the rating unit and those units with a commercial relationship with an evaluated company. Historically, firewalls in financial markets have demonstrated imperfect results.

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Maintaining impartiality is a balancing act. ROs benefit from—indeed, require—regular interaction with evaluated companies in the process of data collection and quality assurance. Similarly, engagement with investors and other stakeholders enriches the quality of the rating. At the same time, interaction between the RO and evaluated company that compromises the integrity of the outcome undermines the credibility of both parties. Instances where an RO establishes a consulting, advisory or other commercial relationship with an evaluated company without proper transparency undermines trust on the part of users seeking a truly independent, unbiased assessment of performance. Ratings applied to financial organizations that offer services to both evaluated companies and clients are particularly vulnerable to perceived conflicts of interest.

Decisions concerning continuous improvement should take into account at least two matters: clustering and disclosure. Clustering refers to the desirability of implementing multiple, significant changes at the same time, judiciously scheduled at regular, predictable intervals. Minor adjustments, defined as small departures from an existing practice, may occur more often. Clustering mitigates the problem of a “moving target” faced by investors, companies and other stakeholders—a situation that undermines a rating’s utility, credibility and uptake.

Disclosure refers to timely reporting of improvements in methodology and content to companies, investors and other users. Alerting stakeholders in advance of improvements (the preferred option) or prompt notification when improvements have been implemented (the second-best option), as well as addressing the anticipated frequency of future changes, enhances understanding of shifts in rating outcomes over time. Also, explanations of changes in rating outcomes, e.g., percent of companies significantly upgraded or downgraded, allows users to calibrate the significance of a change. Alerting stakeholders well in advance of a methodological adjustment or addition/deletion of an issue, for example, serves as a valuable tool for stakeholder engagement. This communication, in turn, builds trust and credibility between ROs and their audiences.

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The Continuous Improvement Principle speaks to the need for periodic enhancement of a rating in light of methodological and scientific innovations, as well as the emergence of new issues, indicators and widely-accepted norms in the field of sustainability performance assessment. Responding to these changes involves trade-offs. Too much change in content and/or methodology exacerbates the problem of excessive volatility and incomparability of rating outcomes, whereas too little change runs the risk of stagnation amidst evolving definitions of corporate value and value creation.

InclusivenessDevelopment of a rating should identify and systematically engage those stakeholders whose decisions are influenced by the application of the rating.Read more.

Engagement encompasses both the governance and technical aspects of the rating. Governance engagement implies an active and continuing role for stakeholders in supporting the development of a rating, in order to understand and consider the needs and priorities of its user community. Engagement in the technical aspects of the rating helps ensure continuous improvement by tapping the knowledge and insights of stakeholders that might otherwise be overlooked. Relevant stakeholders may include parties whose interests are directly affected by the rating, e.g., investors and companies, as well as those whose interests are affected by the sustainability performance of evaluated companies, e.g., employees, consumers and communities.

Stakeholder engagement takes many forms, including focus groups, surveys, workshops and advisory committees. Documentation of all approaches serves the dual purpose of informing continuous improvement and demonstrating to external parties that the rating considers their views.

Stakeholder engagement entails trade-offs. Deciding the optimal depth and breadth of engagement given limits to financial and human resources necessitates a balance between the scope of engagement, its frequency and the instruments used for information-gathering. Documentation and communication of these trade-offs helps strengthen credibility among users.

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The Principle of Inclusiveness in various forms is common to most contemporary standards, including GRI, SASB, IIRC and ARISTA. It signifies that relevant stakeholders and experts should be identified and engaged on a continuing basis in the development, application and evolution of a rating. Stakeholder engagement is prerequisite to ensuring that the process of building a rating is credible, informed and useful to its intended audiences. It is an asset that strengthens relevance and utility. Engagement builds trust in the user community that the rating’s coverage, methodology and content align with the interests of relevant stakeholders.

AssurabilityA rating should be designed to allow for independent, third-party assurance that its application comports with the GISR Principles.Read more.

Assurance assumes a variety of forms and scopes, the details of which vary across countries and the professional assurance bodies that operate therein. Assurance by independent entities, and the attestation statements they prepare, should align with the objective of the exercise and the needs of user communities.

Users may seek evidence of suitable governance and oversight of the rating process, including data quality, documentation procedures and the expertise and objectivity of parties applying the rating. Examples of standards for assurance of some of these key process attributes are included in ARISTA 3.0, ISAE 3000 and AA1000.

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The Principle of Assurability concerns the “assurance-readiness” of a rating. Assurability requires the use of objective and verifiable criteria for assessing alignment of a practice to a specific standard or set of principles. Investors and others who elect to rely on GISR-accredited ratings may seek assurance that such ratings comport with the GISR Principles. Further, assurance may play a role for GISR itself in assessing, after initial accreditation, that a rating is still being faithfully applied at the level of accreditation granted.

The goal of assurability is to provide rating users the confidence that the rating adheres to the requirements embodied in the GISR Principles. Because GISR is global in scope, international auditing and assurance standards should be applied wherever possible, either internally or with assistance from a third party, regardless of the geographic location of the assurance body.

Content: Principles pertaining to the scope, quality, and measurement aspects of a rating

MaterialityA rating should assess performance based on sustainability issues relevant to the decision-making of stakeholders for which a rating is designed.Read more.

The basic materiality test for a rating is whether exclusion of an issue would significantly alter the decisions of a rating user. Materiality is not constant; it varies over time and across users, even within specific stakeholder groups. Variations over time reflect changing scientific knowledge, societal norms and the understanding of determinants of long-term business prosperity. Variation across user groups occurs even within individual constituencies. Among investors, for example, pension funds, private equity firms and impact investors may hold different views on the substance and/or weighting of specific environmental and social issues. Further, materiality is affected by the governance of environmental and social policies and laws that act to attenuate or amplify opportunities and risks affecting company sustainability performance.

Materiality assessment begins with mapping the universe of sustainability issues germane to a company’s core activities. This assessment should encompass issues across the multiple capitals—human, intellectual, natural and social—that underpin the GISR Principles. Evidence of materiality may be found in multiple sources, including academic literature, company reports, the media and shareholder actions. Following this assessment is a prioritization of the universe of issues most likely to impinge upon stakeholder decision-making.

Evidence of both short-term and long-term performance is useful to this process. From the investor standpoint, for example, deficient sustainability management that leads to crises—major product recalls, environmental disasters, supply chain accidents and abuses—have both near-term effects on share price and long-term effects on reputation, in addition to the harms incurred by workers, communities and consumers. On the other hand, evidence that strong sustainability management systems both avoid and mute the adverse repercussions of such crises speaks to the interdependence of sustainability materiality and financial materiality. These assessments have both common themes and specific applications as evidenced, for example, by the different time horizons across asset classes.

Understanding these connections is in the interest of both ROs and the users they serve though, here again, the actions that may follow will vary even within a user community. For example, private and public companies, and private equity, retail and pension funds typically seek different information and apply different time horizons in managing assets.

Ultimately, the test of materiality is uptake by, and feedback from, the user community. When feedback from the market signals the need to add a new rating category or update an existing one, such changes should be executed judiciously in order to avoid undue volatility in rating outcomes and to ensure timely notification to users of impending modifications.

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The use of terminology such as “Material Business Impacts” versus “Material Sustainability Impacts,” or “Financial Materiality” versus “Sustainability Materiality” connotes a distinction that may be valid in the short-term, but is misleading from a long-term perspective. The horizon inherent to all matters pertaining to sustainability is by and large long-term. While the future is by definition uncertain, large-scale social and ecological shifts are subject to increasingly powerful analytics that provide insights, however imperfect, relative to opportunities and risks relevant to long-term business prosperity. Companies whose vision and strategies are rooted in long-term horizons recognize that business/financial materiality and sustainability materiality likely will converge over time. Business prosperity in the long-term is inseparable from healthy and productive workers, communities, societies and ecologies. While ratings will always be customized to user needs, it behooves ROs to not simply respond to, but to help foster, market interest in ratings that reflect this convergent trajectory.

A starting point for identifying the material, universal issues are the “aspects” contained in the GRI G4 framework. For sector-specific materiality, indicators under development by SASB and GRI’s Sector Supplements (and future sector-specific products) also provide useful guidance.

ComprehensivenessEvaluating one or more aspects of sustainability performance should systematically assess for impacts on human, intellectual, natural, and social capital.Read more.

In the course of conducting its business, a company inevitably preserves, expands or depletes various forms of capital. Within the constraints of user needs and resource requirements, a rigorous rating, whether integrated or issue-specific, should attend to these multiple capitals, even if its focus is more narrowly defined. From a systems perspective, changes in one form of capital in an organization are likely to trigger changes in others. Thus, even ratings specific to climate (natural capital-focused), living wages (human capital-focused) or community impacts (social capital-focused) should be attentive to linkages across the other capitals. To illustrate, competitive wages strengthen community well-being which, in turn, builds a more stable, productive and loyal workforce. Stewardship of a stressed aquifer in an arid region helps preserve a critical form of natural capital, which, in turn, reduces company-to-community friction (enhancing social capital) and builds the foundation for long-term job opportunities.

In practice, leading ratings already do this to some degree, even in the absence of an explicit reference to “multiple capitals.” Issues and Indicators pertaining to carbon emissions, water use and biodiversity, for example, fall under the umbrella of natural capital. Human rights, occupational health and safety and living wages enrich human capital. Capacity to innovate, patent generation and resources devoted to advanced educational programs for staff training contribute to intellectual capital creation. When ratings address impacts, externalities, intangibles and off-balance-sheet liabilities, such language expresses the concept of multiple capitals, though without explicit reference to the unifying thread that the capitals framework presents.

Implementation of the Comprehensiveness Principle by ratings should be gradual, cover both opportunities and risks, and accommodate variations in RO and user readiness to embrace the multiple capitals framework. Widespread adoption and general acceptance will require pilot programs, experimentation, research and consultation with all stakeholders. GISR, through both its Principles and accreditation program, is committed to supporting this transition, which it believes will yield long-term benefits to companies, rating users, ROs and society at-large.

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The concept of multiple “capitals”—financial, human, intellectual, manufactured, natural and social—refers to the stock of resources, tangible or intangible, attributable to the company’s activities that advance both company and societal well-being. Leading reporting initiatives such as IIRC and SASB include references to multiple, or “vital,” capitals. GISR embraces the multiple capitals framework as well. For the purpose of ratings, four capitals—human, intellectual, natural and social—are the most germane.

The advantage of the capitals framework is three-fold: (1) the concept of capitals, measurement complexities notwithstanding, provides a common denominator for expressing the various forms of value that companies create in the course of advancing organizational, human and ecological well-being; (2) “capital,” in the sense of a stock of valued assets, is foundational in the language of financial markets; and (3) unbundling impacts into categories of capital provides a more precise taxonomy to guide the future development of ratings. Further, as much as 75 percent of a company’s market value is attributable to intangibles, though they are largely absent in financial reports. In practice, the multiple capitals concept represents a next step in the evolution of the ESG framework that dominates contemporary ratings. The capitals framework lends itself more effectively, both conceptually and analytically, to rigorous sustainability performance assessment than the contemporary ESG framework.

Ratings are user-driven, and users may resist methodologies that reach beyond the narrow confines of measuring performance along a single dimension of sustainability. The Comprehensiveness Principle encourages ROs to pursue a holistic approach when interacting with users. Failing to do so will result in ratings that may affect sustainability performance in ways that misrepresent the full range of business impacts, opportunities and risks. Further, in the absence of a comprehensive approach, a rating user will be unable to detect whether enhancement of one form of capital is occurring at the expense of other forms of capital. A rigorous rating will, in effect, provide a multiple capitals “balance sheet.”

Performance assessment relative to externally-defined targets based on physical limits, thresholds or social norms reflects that companies are not isolated entities. They operate in a local, national, regional and global milieu and are part of larger ecological and social systems, delineated by biophysical limits and socially-defined thresholds. Without contextualization, the capacity to fully assess an individual company’s contribution to the collective impact across all companies is compromised. In such cases, despite incremental progress by individual companies, the aggregate impact of business activity may still overshoot ecological thresholds or undershoot social norms.

For some ecological resources, externally-defined thresholds are emerging at the local, regional, national and global levels. Such is the case for climate change, biodiversity and water resources. For social systems, consensus is slower to evolve, though moving forward. Global frameworks, such as the ILO Core Labor Standards and the UN Guiding Principles for the Implementation of the “Protect, Respect, and Remedy” Human Rights Framework, offer guidelines for assessing aspects of a company’s social performance. Living-wage levels, for example, exemplify a social issue where norms may be expressed in the form of purchasing power parity established by an independent, non-partisan body. While externally-defined thresholds offer the advantage of independence from both companies and ROs, internal thresholds and norms serve as valuable, interim exercises in building familiarity with the concept of Sustainability Context.

Incorporating Sustainability Context into ratings should evolve slowly and in concert with the emergence of scientifically-developed thresholds and limits and social norms at various geographic scales. With the benefit of continuous experimentation, Sustainability Context should take its place alongside time series, goal-based benchmarks and peer group benchmarks as an integral element in current and future sustainability ratings.

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Performance assessment may be expressed from several perspectives including: (1) performance across time periods, i.e., time series; (2) performance relative to an internally defined goal; (3) performance relative to a peer group, e.g., recognizing “best in class” or “top 15 percent”; and (4) performance relative to externally-defined targets based on physical limits, thresholds or social norms, i.e., “sustainability context.”

The first three of these approaches dominate contemporary ratings. Together, they offer valuable, but incomplete, perspectives on sustainability performance. The fourth, sustainability context, appears to some extent in, for example, sector- or facility-based environmental regulations built on maximum tolerable thresholds to protect human health. The sustainability context goes beyond such practices to encourage greater company-level accountability for adhering to science-based thresholds, limits and norms that capture the collective impacts of business activity.

The GRI G2 reporting framework, launched in 2002, pioneered a Sustainability Context Principle that was carried forward to the G3 and G4 versions. Ratings should follow suit to provide greater value to users by helping to identify long-term sustainability opportunities and risks. In an increasingly resource-constrained environment, and amidst rising expectations that companies should create social value, companies that apply the Sustainability Context Principle are likely to emerge as leaders in forward-looking strategy, management acuity and long-term value creation.

Long-Term HorizonA rating should enable the evaluation of the long-term performance of a company while simultaneously providing insights into short- and medium-term outcomes in alignment with the long-term.Read more.

Ratings routinely should favor outcomes associated with stewardship and enrichment of the multiple capitals that materialize in the 3-5 year time horizon and beyond. This perspective does not preclude short-term considerations. Near-term actions that align with desirable long-term outcomes are indispensable to rigorous sustainability ratings. Examples include yearly R&D expenditures focused on sustainable products and services; percentage of products and services that meet sustainability standards; investments in training that elevate employee IT-competency; and development of advanced data systems that track and report the societal cost of environmental externalities. All of these measures entail short-term operating or capital expenses with returns in the form of multiple capital expansion, spanning many years. All signal a company’s commitment to the long-term via the yearly budgeting process. Such a perspective is essential to sound ratings.

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The Long-Term Horizon Principle stresses the intrinsic long-term (e.g., > 5+ years) nature of sustainability, while recognizing the role of medium- (e.g., 3-5 years) and short-term (e.g., < 3 years) benchmarks that occur along the way. The Principle confronts the dominance of short-term measures for business success, such as daily/weekly share price, quarterly earnings or revenue growth, while drawing attention to the interdependency of sustainability performance and long-term financial success.
Investor propensity to employ long-term horizons varies widely, even among institutional asset owners, whose responsibilities are intergenerational. Pressures to outperform near-term market benchmarks flow from beneficiaries to trustees to asset managers to companies. The Principle of Long-Term Horizon seeks to infuse sustainability considerations in assessing portfolio risk and opportunity, and to encourage longer-term horizons among asset owners, asset managers and companies. It supports the notion that a long-term perspective in strategy, management, R&D and products and services will be rewarded, even if short-term financial metrics fall short of conventional analysts’ expectations.

Value ChainA rating should reflect all portions of a company’s value chain over which the company exercises significant influence.
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A systematic assessment of control and influence of the evaluated company, informed by the scale of impacts and their materiality to stakeholders, is integral to a credible rating. Such assessments represent new territory for many ROs, as they require data that only now is emerging via sustainability reports, business information services and questionnaires administered to companies. While significant data and cost barriers exist now, over time ratings should incorporate the full array of outsourcing and procurement characteristics of company operations worldwide, where such operations are considered to present significant influence over suppliers.

Delineation of the entity for evaluation purposes may be addressed through methodologies developed by leading standard-setters. Examples include the Corporate Value Chain Accounting and Reporting Standard developed by the World Resources Institute and the Guidance for Report Boundary Setting of GRI. Transparency, with regard to the methodology and data sources in delineating the boundary of the evaluated company, is essential for both interpretation and credibility of the resulting assessment of sustainability performance.

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The Value Chain Principle addresses the boundaries of accountability that define the evaluated company’s principal impacts. Because of the complexity and reach of contemporary value chains, the questions of “control” and “significant influence” loom large. Shifting impacts backwards and forwards along the value chain does not absolve the parent entity of responsibility for positive and negative impacts on the supply and demand of goods and services. Evaluating companies in industries with complex and far-flung value chains—e.g., apparel, electronics and food—necessitate coverage of upstream and downstream impacts that are integral from a holistic perspective of long-term sustainability performance. Value chains are dynamic, with frequent boundary shifts inevitable in a fast-changing, global economy. A credible rating will disclose and normalize for such changes to enable reliable time series comparisons and to minimize misleading volatility in performance outcomes.

BalanceA rating should utilize a mix of measurement techniques to capture historical and prospective performance.Read more.

Pertinent to the Balance Principle are a number of dimensions that define performance measurement:

Lagging vs. leading: Lagging indicators describe past performance at either a point in time or in a time series, e.g., water intensity or dollars spent on lobbying for the prior one, two or five years. In contrast, leading indicators anticipate future performance, most usefully in the mid- and long-term.

Quantitative vs. qualitative: Quantitative indicators are expressed in numerical form. Qualitative indicators convey the character or nature of an aspect of performance without numerical expression.

Absolute vs. relative: Absolute indicators communicate performance without reference to either internal or external benchmarks. Relative indicators communicate performance relative to the company’s own past or future performance, a peer group, a physical threshold/limit or social target established by external parties, per the above Sustainability Context Principle.

A rigorous rating contains a mix of the above. Users seek insights into the mindset, culture and quality of a company’s management, as well as the hard, quantitative evidence of the company’s capacity to achieve its performance objectives. In some instances, quantitative indicators may serve as proxies for qualitative aspects of the organization, e.g., employee turnover past, present and future may indicate the long-term prospects for attracting and retaining human capital in the form of top talent. A commitment to carbon neutrality or zero waste within five years, or a commitment to measure and report the cost of environmental externalities within three years, represents a mix of policy, forward-looking and quantitative attributes.

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The Principle of Balance concerns the use of different types of data sources, issues and indicators that characterize a company’s performance. Companies benefit from such diversity that translates ratings into instruments that drive continuous improvement. Investors benefit from both lagging and leading indicators, though the latter most directly influence long-term valuation. Other stakeholders, including consumers, suppliers and employees, look to both past and anticipated performance in making judgments as to the quality and prospects of a company.

In general, contemporary ratings overweight backward-looking historical measures of performance and underrepresent forward-looking, leading measures. Correcting this imbalance is complicated by the inherent difficulty in quantifying the future. That is, what indicators will most accurately predict the performance of a company 3-5 years in the future and beyond? Rigorous ratings should contribute to this critical challenge.

A rating that comprises a balance of indicators is more likely to achieve strong market uptake than one that leans heavily in one direction or another. Further, ratings that rely exclusively on backward-looking, policy- and procedure-based indicators, with minimal attention to forward-looking, measurable outcomes, are unlikely to satisfy users who seek insights into a company’s long-term prospects of becoming both a sustainability leader and a prosperous organization.

ComparabilityA rating should allow users to compare the performance of the same company over time and of different companies within the same time period.Read more.

Achieving comparability is a multifaceted challenge. When tracking performance of a single company, a rating must be reasonably stable to avoid excessive year-to-year volatility driven by changes in the methodology, as opposed to actual company performance. If significant organizational change occurs, for example, through acquisition, merger or divestiture, comparability over time likely will be undermined in the absence of data normalization. In such cases, a rating should both acknowledge and strive to balance the tradeoff between comparability and adaptability, in alignment with the Principle of Continuous Improvement.

Comparability of evaluations of peer companies within a single time period requires a high level of uniformity and quality of data across evaluated companies. Where uneven and/or incomplete data is in play, sound comparisons are not possible. Where data deficiencies severely compromise comparability, a rating should seek reasonable proxy issues and/or indicators to maximize analytically defensible comparisons.

Comparability is enhanced when the rating provides clarity and consistency as to whether increases or decreases in numerical values reflect higher or lower levels of performance. Ratings that rely on ratios to measure performance need adequate explication. Only through full and understandable disclosure of ratio data can users properly interpret shifts in company performance that are expressed in ratio forms.

Comparability across ratings, as opposed to across companies or within peer groups, is a separate but equally critical challenge. Users understandably seek multiple ratings to guide decision-making. Diversity is strength, providing a variety of perspectives based on different issues, indicators, weightings and other features of each rating. At the same time, when performance assessment of the same company in a single time period varies dramatically across ratings, users are left wondering about the causes of such disparities. Adherence to both the Comparability Principle and the above Transparency Principle will mitigate such confusion.

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The Principle of Comparability seeks to bring sufficient consistency to a rating such that users can, with confidence, compare performance for the same company over time and across peer companies within the same time period. Comparability is critical to decision-making, investment or otherwise. Choices on the part of asset owners and asset managers, for example, require analysis of a time series, single-company perspective, as well as cross-company comparisons within sectors. The utility of a rating is compromised when it falls short on either of these conditions.